Investing in quality housing solutions.
A Quick Look
Home Buying Guide
Dear Home Buyer:
Kentucky Housing Corporation (KHC) is pleased to serve you
through our home buying services with loans you can trust. As
your state housing finance agency, our mission is to invest in
quality housing solutions for families and communities across
Kentucky. We want to help you purchase a home. You have
already taken the first step by receiving this Home Buying Guide.
The information in this guide will take you through the home
buying process and give you many of the tools you need when you
go to your lender to ask for a KHC loan.
Becoming a homeowner is part of the American Dream – and
we are happy to do all we can to make this dream a reality for
you. We want to help you select the loan that best suits your
household needs and budget.
Our variety of loan products, down payment assistance, and
excellent customer service have made KHC the responsible choice
of Kentucky home buyers since 1972.
Congratulations on taking this first step!
Sincerely,
Single-Family Programs
Kentucky Housing Corporation
2 | Kentucky Housing Corporation
Table of Contents
Benefits of Homeownership......................................................................................... 4
Step 1 – Prepare to Buy................................................................................................ 5
Are You Ready to Buy a Home?...........................................................................5
Living on a Budget...............................................................................................6
Obtaining Financing – Credit...............................................................................6
Step 2 – How Much House Can You Buy?...................................................................... 8
Monthly Principal and Interest............................................................................8
Estimating Your Monthly Payment......................................................................8
Debt-to-Income Ratio..........................................................................................9
Step 3 – Finding a Lender to Suit Your Needs...............................................................11
KHC-Approved Lenders.....................................................................................11
Know Before You Owe.......................................................................................11
Step 4 – Understand Different Financing Types............................................................13
Fixed Rate Mortgage.........................................................................................13
KHC’s Home Buyer Tax Credit............................................................................13
Step 5 – Finding a Home..............................................................................................14
Selecting a Real Estate Professional..................................................................14
What to Look for in a Home..............................................................................16
Other Details to Consider..................................................................................16
Home Comparison Data Chart..........................................................................18
Step 6 – Loan Application............................................................................................20
Information Needed..........................................................................................20
Initial Funds Needed.........................................................................................20
Checklist............................................................................................................20
Step 7 – Loan Process..................................................................................................22
Reviewing the Application.................................................................................22
Loan Closing......................................................................................................23
Step 8 – Protecting Your Investment............................................................................25
Making Your Payments......................................................................................25
What Your Payments Include............................................................................25
When Problems Occur......................................................................................26
Glossary of Terms........................................................................................................28
Notes..........................................................................................................................34
Home Buying Guide | 3
Benefits of Homeownership
Homeownership can offer many benefits to you, whether you are single or have
a family. It is usually a household’s first step towards the creation of wealth. If
you take good care of your home, its value may increase over time. This is called
equity, which you can use to buy more goods and services, start your own
business, pay for a college education, take a dream vacation, or spend however
you wish. Additionally, homeownership typically offers income tax benefits,
which can save you money annually.
Homeowners are good for communities – they care about the future of the
community because they have a long-term stake in it. Homeowners provide
support for the local school system, fire and police departments, and city
government.
What real benefits do homeowners have?
Being a homeowner can give you a sense of stability and permanence, in
addition to establishing equity. It gives you the flexibility to make home
improvements wherever and whenever you want. You are not subject
to periodic rent increases. The interest you pay may be tax deductible
or you may be able to convert 25 percent to a Home Buyer Tax Credit
through KHC. This Home Buyer Tax Credit is called an MCC. (See page 13
for more information.) Consult a tax specialist to learn what options are
appropriate for you.
4 | Kentucky Housing Corporation
Step 1 – Prepare to Buy
ARE YOU READY TO BUY A HOME?
Buying a home is a big step. In addition to recognizing the financial
commitment, you will want to take a few minutes to assess:
• Your job history and your income.
•How you have paid your bills (your credit history) and how much
you owe.
• How much money you have saved for a down payment.
These are all considerations when preparing to buy a home. If you are unsure
of your strengths in these areas, please talk to a KHC-approved lender. If
you need to work on your budget or credit, you can enroll in one of KHC’s
homeownership education classes with one of our approved homeownership
counselors.
KHC partners with non-profit counseling agencies across the state to provide
housing counseling and education services. KHC-approved counselors can
accommodate clients with a variety of delivery methods, including group
classes and individual counseling offered face-to-face, by telephone, and online.
A list of approved agencies, class descriptions, and schedules are available on
KHC’s website under Home Buyers, Housing Counseling and Education.
If you are ready to buy, the best way to find out about KHC’s home
loans is to contact an approved lender. We partner with approved lenders and
banking institutions across the state to provide you with the best mortgage loan
options. To find a KHC partner lender, visit www.kyhousing.org or call toll-free
in Kentucky 800-633-8896 or 502-564-7630, extension 291, or TTY 711.
The lender can tell you more about KHC’s rates and guidelines. If you are not
sure how much you can afford to pay for a house, the lender can help you
develop an estimate. The lender will evaluate your assets, debts, and sources
of income. Based on this preliminary analysis, they will tell you the amount for
which you would qualify (prequalification). Once you find the home you want
to purchase, your lender will verify that the information you provided and
received during your prequalification is accurate during the application process.
Home Buying Guide | 5
LIVING ON A BUDGET
Budgeting helps you control your financial future. A budget helps you prepare
for large expenses and helps you see items that are costing too much. Having
a solid budget allows you to control your finances rather than letting your
finances control you. Budgeting forces you to look at your financial situation the
way it really is, so you can then make the best decisions.
Budgeting is an important part of preparing yourself for the purchase of a
home. It helps you to save for the up-front costs and strengthens your loan
application. If you stick to your budget, you will be able to save the money
needed for the down payment, closing costs, and any emergencies that may
come up, without sacrificing your ability to pay your bills. Because you have
established a regular savings plan as part of your monthly budget, it becomes
automatic to save for the future.
Be sure to save enough to cover the many expenses facing the new
homeowner. These can include moving, utility hook-ups, tools, maintenance
supplies, furniture, and even window treatments.
OBTAINING FINANCING – CREDIT
For most of us, a home is the largest single purchase we will ever make.
Obtaining financing for a home is a more complex process and takes more time
than buying a car.
You will first need to prove that you have enough income to make your monthly
mortgage payment without neglecting your other monthly financial obligations.
This is called “qualifying” for the mortgage loan. Making sure you qualify for a
home loan before you purchase protects you and your credit.
Once you apply for a mortgage loan, you undergo a very thorough credit
investigation and verification. The lender needs information regarding your
employment and your payment history. This is why it is important to establish
a good credit record early. The lender also verifies all the information either in
writing or by telephone.
After you have passed the credit review, the lender looks at your total financial
picture to determine if you are a good credit risk for the mortgage. If the
answer is yes, you can proceed with finding a home. If the answer is no, the
lender provides you with specific information about why the loan was declined
and what must be done to correct the areas of concern.
6 | Kentucky Housing Corporation
Here are some suggestions to receive favorable mortgage credit:
• Start building good credit records from the beginning by always making
your monthly payments (car loans, rent, utilities, etc.) on or before the
due date.
• Research and educate yourself on mortgage terms and different types of
mortgage financing.
• Do not sign anything without a full explanation that you understand. You
have the right and responsibility to ask questions.
KHC’s credit score requirement is
620 minimum.
Home Buying Guide | 7
Step 2 – How Much House Can You Buy?
MONTHLY PRINCIPAL AND INTEREST
Loan Amount
Interest Rate
4.00%
4.50%
5.00%
5.50%
6.00%
6.50%
7.00%
7.50%
$ 60,000
$287
$305
$323
$341
$360
$380
$400
$420
$ 80,000
$382
$406
$430
$455
$480
$506
$533
$560
$100,000
$478
$507
$537
$568
$600
$632
$665
$700
$120,000
$573
$609
$645
$682
$719
$758
$799
$840
$140,000
$669
$710
$752
$795
$839
$855
$932
$979
$160,000
$764
$811
$859
$909
$959
$1,011
$1,065
$1,119
$180,000
$860
$913
$967
$1,023
$1,079
$1,138
$1,198
$1,259
$200,000
$955
$1,014
$1,074
$1,136
$1,199
$1,264
$1,331
$1,399
$220,000
$1,051
$1,115
$1,182
$1,250
$1,319
$1,391
$1,464
$1,539
$240,000
$1,146
$1,217
$1,289
$1,363
$1,439
$1,571
$1,597
$1,679
Many factors will be considered during the home buying process, but none
as critical as your ability to make your monthly mortgage payment. Above is a
table to help you get an estimate of how much house you can afford and what
your monthly house payment could be.
ESTIMATING YOUR MONTHLY PAYMENT
To estimate your monthly home loan payments, use the chart above. A
worksheet is provided on the next page. First, find the loan amount that is close
to the amount you think you will need for a home. For this exercise, we assume
the loan amount is the same as the purchase price. Move across the columns
to find the interest rate for your loan. Your lender can tell you what KHC’s
current interest rate is or you can visit KHC’s website for current rates. The
dollar amount in the box where your loan amount and interest rate meet is the
amount of the principal and interest included in your proposed house payment.
8 | Kentucky Housing Corporation
Estimate your total monthly payment using the worksheet below:
Example
Your Estimate
Estimated monthly principal and interest (from chart)
(for a $120,000 loan at 5.50 percent interest)
$ 682.00
$
Estimated monthly taxes and insurance
(purchase price x 0.0016 – local requirements vary)
+ 192.00
+
Estimated monthly mortgage insurance
(loan amount x 0.0085 divided by 12 months)
+ 85.00
+
Total estimated monthly mortgage payment
$959.00
$
(Note: Monthly mortgage insurance is required with FHA loans and will vary with
conventional loans, depending on amount of down payment and your credit score. Your
KHC-approved lender will tell you about insurance requirements.)
DEBT-TO-INCOME RATIO
One of the most important factors in the loan approval process is the amount
of debt you hold compared to your gross income (income before taxes and
deductions). The relationship between the amount owed and the amount
of income is called a debt ratio. The lender uses two types of debt ratios in
deciding whether to approve a loan:
1) The ratio of the proposed house payment to monthly
gross income.
2) The ratio of total monthly debt and proposed house
payment to monthly gross income. The following
example will help you estimate your debt ratios.
Home Buying Guide | 9
STEPS
a) Enter your monthly gross household income,
including all nontaxable income and stable
child support.
$__________(1)
b) Enter your total estimated monthly mortgage
payment from previous worksheet.
$__________(2)
c) Enter your total of all monthly payments on debts
including the proposed house payment. This will
include items, such as car loans, credit cards,
child support payments, student loans, etc. Do
not include expenses, such as utilities, child care
expenses, and food.
$__________(3)
d) Now calculate the house payment to monthly income ratio.
$________divided by
(2)
$________equals
(1)
_______________%
(should not exceed 29%)
e) Now calculate the total debt to monthly income ratio.
$________divided by
(3)
$________equals
(1)
_______________%
(should not exceed 41%)
If you exceed the 29 percent or the 41 percent ratios, you may need to consider
a lower-priced home. Please keep in mind that low ratios do not always lead to
loan approval and slightly higher ratios do not always lead to loan denial. There
are other factors that are considered, including your credit record, job stability,
savings ability, and potential increases in income.
Caution: The calculation of ratios does not include the other expenses incurred on
a monthly basis. These expenses include food, child care, car insurance, utilities,
etc. Ratios are based on your gross income (before taxes are taken out). Be sure
your proposed house payment will not create budget difficulties.
10 | Kentucky Housing Corporation
Step 3 – Finding a Lender to Suit Your Needs
KHC-APPROVED LENDERS
It is often suggested that a home buyer should begin the process of buying a
home by speaking with a lender. By doing this, the buyer will know how much
house they can afford based on their income and debts. Many real estate
agents prefer customers do this before looking for a home because it helps
define the search criteria based on what the buyer can afford.
For all KHC loans, a home buyer must apply through a lender that has been
approved to work with KHC. The lender will take you through the qualifying
guidelines and the application process.
The lender will help determine how much home you can purchase, analyze your
credit, and give you a Good Faith Estimate, which details all the costs associated
with your loan, including down payment, closing costs, and prepaid items.
Additionally, the lender will be able to recommend any KHC down payment
assistance for which you may qualify.
KNOW BEFORE YOU OWE
Since the financial crisis of 2008, the Consumer Financial Protection Bureau
(CFPB) was created as part of Dodd–Frank Wall Street Reform and Consumer
Protection Act. It writes and enforces rules for financial institutions, examines
both bank and non-bank financial institutions, and monitors and reports on
markets, as well as collects and tracks consumer complaints.
CFPB’s central mission “is to make markets for consumer financial products
and services work for Americans—whether they are applying for a mortgage,
choosing among credit cards, or using any number of other consumer financial
products.” They have several resources, including borrowing advice and
regulations, and provide information about the new mortgage disclosures
(effective August 1, 2015).
Shop around! You may be able to get a better rate with another lender. Use the
new disclosures to your advantage and compare total costs.
More information about the CFPB can be found at www.consumerfinance.gov.
Home Buying Guide | 11
Do Your Homework.
With the new disclosures, comparing costs between loans is much easier, but
is still a daunting task. If you have questions about a loan that you are offered,
remember that KHC has a network of homeownership counselors to help you
through the process.
For a complete list of counselors, visit www.kyhousing.org and click on Housing
Counseling and Education, under Home Buyers, or call toll-free 800-633-8896
and ask for the Homeownership Education and Counseling Department.
KHC’S HOME BUYER TAX CREDIT (MCC)
KHC’s Home Buyer Tax Credit is available through Mortgage Credit Certificates
(MCC), which reduces the amount of federal income tax you pay, giving you
more available income to qualify for a mortgage loan. The tax credit puts
extra cash in your pocket each month, so you can more easily afford a house
payment. That means fewer tax dollars will be withheld from your regular
paycheck, increasing your take-home pay. The mortgage, when purchased by
a borrower, acts as a tax credit that may reduce annual federal income tax
liability, up to $2,000.
The credit is effective for the “life of the loan.” Certain eligibility requirements
apply. The MCC-approved lender will take your application and determines
household eligibility for the Home Buyer Tax Credit. If they wish, the borrower
can also convert 25 percent of their mortgage interest to a tax credit.
12 | Kentucky Housing Corporation
Step 4 – Understand Different Financing Types
There are many different financing types available for home buyers. Your lender
can help you select the best one for you. KHC specializes in 30-year, fixed-rate
mortgages, which is the most stable financing option.
In addition to stable financing options, KHC maintains all mortgages in
Kentucky. KHC does not sell mortgages like other mortgage companies.
FIXED RATE MORTGAGE
Fixed-rate mortgages are the traditional loans that have a fixed interest rate
over the life of the loan, typically 30, 20, 15, or 10 years. With these loans,
your monthly payment for interest and principal never changes (your escrow
expenses, such as property taxes and insurance, may change from year to year).
Down payments required on these loans can be as low as 3 percent. In some
cases, a down payment is not required.
If you choose to get a KHC loan, your interest rate will never change
(although your insurance and taxes may vary, which will affect your
payment), and you will always have the security of knowing your loan is
serviced by KHC.
Home Buying Guide | 13
Step 5 – Finding A Home
SELECTING A REAL ESTATE PROFESSIONAL
Once you know how much house you can afford, you can start looking for a
home to buy. Although you can choose to look on your own, it can be beneficial
to utilize the services of a real estate professional, who knows which homes can
meet your requirements and preferences.
If a seller is using a real estate agent to sell their home, the seller has already
entered into a listing contract for that agent’s assistance. The seller typically
pays the fees for the real estate agent’s assistance. If you choose to work with
an agent for your home search, you will be responsible for any fees they may
charge after closing on your new home.
Just because the seller is using an agent to represent them in the sales
transaction, it does not obligate you to use that agent to represent you. You
can find a real estate agent on your own to help you find a home, help you in
negotiating the sales price, and assist you in understanding the process. Your
agent can provide you with information about the different neighborhoods
where you might want to live, as well as suggestions that you may not have
considered. Your agent can give you practical advice about what you should
look for in a home.
Your agent can also help you in other ways, too. They can help you find
homeowner’s insurance, help with the transfer of your utilities, and help with
home inspections. They can help educate you through the entire process.
A real estate professional plays a very important role in the home buying
process and should be selected with care. Before selecting your agent, ask for
recommendations from family and friends and interview several agents to have
a better idea of what each one can offer you. The relationship between a real
estate professional and a buyer should be one of mutual respect, trust, similar
objectives, and a written agreement specifying the terms and conditions of the
agent’s representation of the buyer.
14 | Kentucky Housing Corporation
The ideal real estate professional:
•Understands your needs and objectives.
•Is professional and dedicated to doing a good job.
•Knows the area where you want to live.
•Knows how much you can spend on a home.
•Has a valid real estate license or certificate.
•Has excellent references from other clients.
•Treats you with the respect that you deserve.
WHAT IS A REALTOR®?
Some people think that all real estate agents are “REALTORS®,” but not every
agent can legally use the title.
A REALTOR®, is a real estate agent or affiliated real estate professional who is
a member of the National Association of REALTORS® (NAR).
REALTOR® CODE OF ETHICS
When agents become REALTORS®, they must agree to conduct their business
in a way that adheres to the NAR’s Code of Ethics. The REALTOR® code covers
ethical requirements that deal with all aspects of the job, from working
with consumers and fellow agents, to writing truthful advertising. For more
information, please visit www.realtor.org.
Home Buying Guide | 15
WHAT TO LOOK FOR IN A HOME
Before you begin searching for a home, it is important that you decide what
characteristics you want in your home. Use the Home Comparison Data Chart
(page 18) to write down the desired characteristics of your home and use it to
evaluate how the different homes you look at meet your desires. Print several
copies of the chart and carry them with you as you search for a home, keeping
in mind which characteristics you consider essential in the home you purchase.
If you fill in the information as you look at homes, you will be able to remember
the different homes you see and can evaluate the homes fairly, using the same
criteria, regardless of when you see them.
Once you choose which characteristics you want your home to have and which
neighborhoods you are interested in living, you should begin to look at homes
for sale with your real estate agent. During this period, it is important that you
make a thorough evaluation of the properties you visit.
Get accustomed to viewing properties with a critical eye. Inspect each home
thoroughly, making sure you look at and evaluate each area that you consider
important in your home. Feel free to take pictures or video so you can
remember what you liked or disliked in each home, and make sure that you
keep detailed notes on your Home Comparison Data Chart.
OTHER DETAILS TO CONSIDER
Here are some additional important house hunting tips to consider as
you search:
• Read a sample of the purchase contract very carefully. Ask the real estate
agent to explain all items you do not understand.
• If you make an offer to purchase a home, make it contingent (conditional)
on your ability to obtain satisfactory loan financing. This means you are not
obligated to buy the house if you cannot secure an acceptable loan.
For example: “This transaction is contingent upon receiving financing through
Kentucky Housing Corporation.”
• When making an offer on a house, you must make an “earnest money”
deposit. This shows your good faith intention to purchase the house. Pay
the minimum amount of earnest money possible. It is typically not cashed
until the loan closing and added to the overall amount of money you
borrow.
16 | Kentucky Housing Corporation
• Arrange for an acceptable home inspection by a qualified inspector. An
inspector will check for defects and safety-related issues of your potential
new home, including utilities, roof, quality of construction, wiring,
plumbing, etc. An inspection usually costs between $200 and $300, but it is
well worth the money spent.
• Decide in advance who will pay for the repairs, if any are needed, and
include this agreement in the purchase contract.
• Buyer Beware: While you have the right to expect that your home
is built in accordance with all applicable local, state, and federal building
codes and ordinances, it is up to you – the buyer – to question and verify
these are, in fact, true. Research your purchase before you buy.
The Difference Between Home Inspection and Appraisal
A home inspection is an examination of a property to determine the
condition of the structure and mechanical systems. A home inspection
is not required but is recommended to buyers. The inspection gives
valuable information on the home’s structural condition and mechanical
systems and only takes two to three hours to complete.
Home buyers not only can, they should accompany the inspector during
the inspection. This insures the buyer is fully knowledgeable about any
possible issues.
It is recommended that a home buyer include a home inspection
contingency in their Offer to Purchase contract. By making the offer
contingent on an acceptable home inspection, a buyer has the option to
withdraw the Offer to Purchase if the inspection reveals problems that
neither the buyer nor the seller is willing to correct.
An appraisal is an estimate of the value of a home and is required by the
lender. An appraisal does not indicate if a home needs repairs.
Home Buying Guide | 17
HOME COMPARISON DATA CHART
LOCATION INFORMATION AND DIMENSIONS
Address
Sales Price
Type of Housing
(single-family, condo, townhouse, ranch, two-story, etc.)
Lot Size
Type of Neighborhood
Deed Restriction/Covenants
Community (schools, shopping, commute)
EXTERIOR
Style/Age and Condition
Yard/Landscaping
Garage
Siding or Brick
Driveway
Windows/Doors
Roof
INTERIOR
No. of Bedrooms
Kitchen
Dining Room
Appliances
No. of Bathrooms
Living Room
Deck/Patio
Basement/Attic Storage
Other
EQUIPMENT AND MECHANICS
Heating System
Water Supply
Sewer or Septic Tank
Plumbing
Electrical (amps)
Insulation
Air Conditioning
Other
18 | Kentucky Housing Corporation
HOME 1
HOME 2
HOME 3
Home Buying Guide | 19
Step 6 – Loan Application
INFORMATION NEEDED
You are only a few steps away from realizing your dream of homeownership.
Once you have found a house and made an offer to purchase, it is time to apply
for your loan and get the loan process started. You will probably want to work
with the KHC-approved lender that prequalified you. If not, look for a KHCapproved lender on the Home Buyers page of KHC’s website, and schedule an
appointment with a loan officer.
INITIAL FUNDS NEEDED
There will be certain expenses that must be paid upfront when purchasing a home.
Earnest Money or a Good Faith Deposit – You might be asked to put down a
deposit (several hundred dollars, depending on the value of the home and the
market) towards the down payment that shows your commitment to buying
the home. Ask your real estate agent how much money is needed for a deposit
and use your prequalification certificate to back up your offer to the seller. It is
typically not cashed until the loan closing and added to the overall amount of
money you borrow.
Credit Report – While we realize that many people do not have perfect credit,
a home buyer must have good credit to receive a loan. Credit standards vary
depending on the loan type. Your lender will obtain your credit report from all
three major credit reporting agencies. KHC requires a minimum 620 credit score
for all loan products.
Appraisal – All homes must be appraised. This is a report made by a qualified
person, which states his/her opinion of the value of a property.
CHECKLIST
To be approved for a loan, a lender must research your sources of income, your
debts, and your credit history. You have already given the necessary information
to pre-qualify you for a loan, now you must formally apply for a loan, filling out
a complete application and supplying documents verifying the information you have given. Having the proper documentation makes the loan process
much quicker.
20 | Kentucky Housing Corporation
Use this checklist when gathering your documentation.
 Evidence of Social Security number for each applicant.
 W-2s for the past two years.
 Copies of filed tax forms for the past two to three years.
 Completed purchase contract signed and dated by the buyer, the
seller, and any real estate agents involved.
 Seller’s Disclosure of Property Condition (if real estate agent is
involved).
 If applicable, copy of signed, court-entered divorce decree and
property settlements with verification of child support or maintenance
paid or received.
 If applicable, copy of bankruptcy discharge papers and a written
explanation from applicants of the reasons for filing bankruptcy.
 Landlord name(s), address(es), and phone number(s) for the last two
years.
 Name(s) and address(es) of ALL employers for past two years for each
applicant.
 Paycheck stubs covering the past 30 days.
 Proof of any other sources of income.
 Most recent two months’ bank statements for all accounts (savings,
checking, etc.).
 If applying for a VA loan, copy of DD-214 and VA Certificate of
Eligibility.
 If a family member will be giving you money (gift funds) to be used in
purchasing a home, provide the amount and source of the gift.
 Other items requested by lender.

___________________________________

___________________________________

___________________________________
Home Buying Guide | 21
Step 7 – Loan Process
REVIEWING THE APPLICATION
Once you complete the application form and the lender has the requested
information, the process moves ahead.
Good Faith Estimate – At the time you apply for a loan, or within three days,
the lender gives you a form called a Good Faith Estimate. This is an estimate of
what your home loan will cost you. These costs include down payment, closing
costs, and prepaid expenses. If you do not have enough money saved to cover
those costs, you can apply for a KHC Down payment Assistance Program (DAP) loan.
Verifying Information – The lender verifies all the information on the loan
application by contacting your employers, landlords, and financial institutions.
Also, the lender orders a copy of your credit report, which provides the lender
with your credit score. The lender will additionally order an appraisal of the
home you want to buy.
Underwriting – Final Assessment Regarding Ability to Repay – Next, the lender
gives your loan file to a loan underwriter for review. The underwriter looks at all
the information provided and then decides whether to approve the loan.
During the underwriting stage, three areas are reviewed:
•Your ability to repay the loan.
•Your credit record.
•Appraised value of the property.
The underwriter reviews your income and compares it to your expenses and
debts to determine if the new loan payment fits your budget.
Once the underwriter reviews all the information, he/she decides whether to
approve your loan. If the loan is approved, the lender prepares for the loan
closing.
If the underwriter does not approve your loan, the reasons why are stated.
It is important you find out why the loan was not approved so you can work
to change the situation and try again at a later time. KHC also offers credit
counseling to help applicants whose loans were denied due to credit and/or
budget issues.
22 | Kentucky Housing Corporation
LOAN CLOSING
The loan closing is a meeting where the buyer and the seller sign the loan
documents with an attorney present. There are several items to address prior
to the actual closing day.
Final Repair Inspection/Walk-Through – You or your real estate agent should
inspect the house again before the loan closing. If the inspection requires that
repairs be made to the house, they must be completed prior to the loan closing.
In most cases, an inspection by a third party will be required once repairs are
completed.
Survey, Title Search, Termite Inspection – The lender may order a survey to
identify the true boundaries of the property, the placement of the house on
the property, and any easements or encroachments. A title search is made to
ensure no other liens (debts) exist on the property at closing and to ensure that
proper transfer of the title can occur. A termite inspection may also be ordered,
although not required unless the inspector finds possible infestation or damage.
If termites are found, the house must be treated. If damage exists, repairs may
need to be made.
Homeowner’s Insurance – You must purchase homeowner’s insurance (hazard
insurance) and bring the policy to the loan closing, along with a receipt showing
payment. Ask the lender how much insurance coverage is required. If the
property is located in a flood area, flood insurance is also required.
Before the Closing – You may ask for a copy of closing documents in advance.
This will give you a pressure-free opportunity to review and understand the
terms of your financing. If you have any questions, you can consult your real
estate agent, your lender, or your attorney prior to closing.
Closing Day – The lender schedules the closing date with a local attorney.
The attorney prepares the loan documents, including the mortgage, note,
settlement statements, etc. The closing typically takes one hour.
The three most important documents you will sign are the note, the mortgage,
and the deed. The note represents your promise to pay KHC, according to the
agreed upon terms, including the dates on which your home loan payments
must be made and the location to which payment must be sent. The mortgage
is a contract that makes your home the security on the loan or guarantees its
repayment. The deed is the document that transfers ownership of the property
from the seller to the buyer.
Home Buying Guide | 23
Make sure the terms are what you expect. This is not the time to find out about
a change in rate, loan type, etc. This is probably one of the biggest decisions
many people will make in their lifetime, so it is okay to ask questions.
At the closing, you must provide funds to pay for the down payment, closing
costs, and prepaid fees. You may pay these with your own funds, with a KHC
DAP, and/or a gift from a relative. For these, you will need to obtain a certified
or cashier’s check. The lender will let you know in advance how much money to
bring to closing.
When the closing is finished and all the papers are signed, YOU ARE A NEW
HOMEOWNER! Congratulations!
24 | Kentucky Housing Corporation
Step 8 – Protecting Your Investment
MAKING YOUR PAYMENTS
If you used KHC for your financing, while your local lender handles your loan
transaction, KHC provides the money for the loan and you will make your
monthly payments to KHC. At the loan closing, you will receive instructions on
how and when to make your payments. Soon after the closing, you will receive
a letter from KHC along with a coupon book to use in making all future loan
payments.
You will not receive a monthly bill for your loan payment. It is your
responsibility to plan for each monthly payment. Mortgage payments are
generally due on the first day of each month.
You may pay your KHC loan in one of four ways:
1. Online, at www.kyhousing.org, under My Account, Make a Payment,
Single-Family Loans.
2. Phone, by calling 800-341-5622. (Please note there is an additional fee
for this option.)
3. Mail, send to:
Kentucky Housing Corporation
P.O. Box 4809
Frankfort, KY 40604-4809
4. In person, deliver your check to KHC at 1231 Louisville Road, Frankfort, Kentucky.
When mailing or delivering in person, make sure to include your loan number
on your check or money order. To avoid late charges, make sure KHC receives
your full payment on or before the due date indicated on your coupon.
WHAT YOUR PAYMENTS INCLUDE
Each month, your mortgage payment includes principal, interest, taxes, and
insurance (PITI). The principal portion of your payment is the amount originally
borrowed. Interest is the cost of borrowing the money. The tax and insurance
portion of your payment is held each month in a separate account called an
escrow account to accumulate the money needed to pay your annual property
tax, annual homeowner’s insurance, and annual mortgage insurance. KHC
makes these annual payments for you using the funds in your escrow account.
Home Buying Guide | 25
WHEN PROBLEMS OCCUR
Loan Servicing – If you encounter any problems, such as unemployment or
other loss of income, which may affect the timeliness of your payment, your
first call should be to KHC’s Loan Servicing Department toll-free at 800-3415622. Loan Servicing representatives will work with you on a solution to enable
you to keep your home. Remember, it is very important to make your payments
on time and for at least the amount due if you want to protect your credit
record. If you have a loan from another lender, call your loan servicer as soon as
you think you may have a problem.
Insurance – If your home is damaged by a fire or by some other occurrence
that is covered in your insurance policy, call your insurance agent and fill out
a claim immediately. A claims adjustor will do an inspection of the property
to determine the cash value of the damages. Once this has occurred, the
insurance company will issue a check to you and your mortgagor.
Other Obligations – Your loan requires that you maintain your property. This
requirement exists to protect your investment and to increase the value of your
property. When you make any repairs or improvements, make sure to always
use a licensed contractor, plumber, electrician, etc.
Additional Costs – When you buy a home, be prepared for certain additional
costs that all homeowners have, such as electricity, gas, trash collection, water
and sewer service, home maintenance, and landscaping. Also, make sure to
have savings to quickly repair or replace fixtures, appliances, heaters, airconditioning, plumbing, and structural damages, if needed.
Kentucky Homeownership Protection Center
If you start having financial trouble, remember that help is available.
Open and review all notices from your mortgage loan servicer and contact them
as soon as you have a financial problem. This will give you more time to work
out a solution.
If you are unable to work with your loan servicer, please contact the Kentucky
Homeownership Protection Center. Approved foreclosure intervention and
default counselors will work with you one-on-one through the problem.
Resolutions might include a reduced monthly payment amount, reduced
interest rate, or extended mortgage term. For more information, contact the
Kentucky Homeownership Protection Center and speak to a representative to
find the help you need.
26 | Kentucky Housing Corporation
www.ProtectMyKYHome.org – (866) 830-7868
Buying a home is the largest, most important, single purchase
most people ever make. Take pride in your home by taking care of
it and always make your monthly payments on time to keep your
good credit record.
KHC is committed to serving your
housing needs. We look forward
to hearing from you soon.
If you have more questions about
the home buying process, please
call KHC toll-free at 800-633-8896
or 502-564-7630, extension 291, or
TTY 711.
Home Buying Guide | 27
Glossary of Terms
Abstract of Title: A written history of the property title from its origin to the
present.
Accrued Interest: The amount of interest due since the last payment.
Agreement of Sale (purchase contract, purchase agreement, sales agreement):
A written document by which a buyer agrees to buy and a seller agrees to sell a
property.
Amortization: The payment of a debt in equal installments that results in the
retirement of the debt.
Amortization Schedule: A list of each payment due on a mortgage loan, which
shows the amount applied to the principal, the amount applied to interest, and
the remaining principal balance.
Annual Percentage Rate (APR): A percentage of the amount of the home loan
that represents the total annual cost of the loan, including finance charges.
Application: The forms used and the process of asking for a home loan.
Application Fee: A fee to cover the costs of processing the application,
documentation, and verification.
Appraisal: The report made by a qualified person, in which a professional
opinion is provided regarding the value of a property.
Appreciation: An increase in the value of real estate (property).
Balance Sheet: A statement of assets, liabilities, and net worth.
Borrower (and Co-Borrower): The individual(s) borrowing money from the
lending institution.
28 | Kentucky Housing Corporation
Closing Agent/Attorney: The closing agent or closing attorney develops various
documents required for the closing of the mortgage loan. They conduct the
closing and are responsible for explaining the documents to the borrower
and the seller. The closing agent also does a title search of the property to
ensure that clear title can be transferred to the borrower. They obtain needed
signatures and record the transaction with the appropriate local government
agency.
Closing/Settlement: The conclusion of the transfer of ownership on a property.
Closing Costs: The costs associated with the transfer of ownership of a
property. These include fees for as attorneys, title search, appraisals, filing
of the mortgage deed, and points. Before closing the loan, the lender must
provide the borrower with a detailed list of the actual closing costs.
Credit Report: A report carried out by a credit reporting agency and used by
the lender to determine whether an applicant is eligible for credit.
Depreciation: The loss of value in real estate (property).
Discount/Discount Points/Points: The finance charges paid at the beginning of
a loan. One point equals one percent of the loan amount.
Down Payment: The portion of the amount for the purchase of real estate that
is given in cash and in advance by the borrower.
Earnest Money/Good Faith Deposit: The deposit made by the buyer to a third
agency, which is held until the transaction is completed.
Finance Charge: The total dollar amount paid to use credit.
First Mortgage: A mortgage having priority over all other liens.
Fixed Rate: An interest rate that does not change unless the borrower chooses
to refinance.
Home Buying Guide | 29
Home Buyer Educator/Homeownership Counselor: The professionals who
help people obtain and/or retain homeownership. Home buyer educators
conduct classes or other group educational experiences for potential
and new homeowners. Homeownership counselors work with clients oneon-one to advise them throughout the home buying process and assist with
individualized credit and financial management.
Home Buyer Tax Credit: A certificate purchased from and issued by Kentucky
Housing Corporation. It establishes eligibility for a “life of a loan” tax credit. The
borrower must qualify and be purchasing an eligible residence. Also known as a
Mortgage Credit Certificate (MCC).
Homeowner’s (or Hazard) Insurance: An insurance policy whereby, for a
premium, an insurer agrees to insure a property in case of a loss.
HUD-1 Settlement Statement: An itemized statement of the charges to the
buyer and the seller, showing how the money is paid out.
Interest Rate: The percentage of an amount of money that is paid for the use of
that money over a period of time.
Judgment Lien: A judgment by the court and placed as a lien against a
property.
Lender: The bank, savings and loan, mortgage company, credit union, etc., that
makes mortgage loans available.
Loan Amount: The dollar amount of the credit provided to the borrower. This
includes any cash the borrower receives, as well as the amounts the borrower
may pay to other creditors and fees paid by the borrower or the lender.
Loan Officer: The person who works to prequalify the borrower or take the
loan application.
Loan Processor: The person who verifies the information the borrower gave
the loan officer, obtains an appraisal and credit report, and packages the loan
file for review.
Loan Servicer: The entity receiving the homeowner’s mortgage payments.
30 | Kentucky Housing Corporation
Loan to Value (LTV) Ratio: The ratio of the value of property versus the loan
amount.
Loss Payee Clause: The clause in an insurance policy indicating who is to be
paid in the event of a loss.
Margin: The percentage a lender adds to the index rate to determine the new
interest rate.
Maturity: The due date of a note.
Monthly Payment Amount: The dollar amount due each month to repay the
loan.
Mortgage: A legal document that transfers interest in a property and serves as
a security for payment of a debt.
Mortgage Banker: A firm dedicated to real estate loans.
Mortgage Banking: The packaging of mortgage loans to be sold to a permanent
investor.
Mortgage Credit Certificate (MCC): See Home Buyer Tax Credit.
Mortgage Investor: The borrower is not likely to meet your mortgage investor
but it is good to know what they do. About three out of four mortgage loans
are sold to mortgage investors. Some mortgage investors include Fannie Mae,
Freddie Mac, and Kentucky Housing Corporation. Selling loans gives the lender
more money for future lending activities. If the loan is sold to an investor, it will
not affect the terms of the mortgage.
Mortgage Insurance: A requirement on some loans to insure the lender against
loss caused by the borrower’s failure to make payments.
Mortgage Note: A written promise to repay the stated amount of money at the
stated interest rate over the stated period of time.
Origination Fee: A fee charged by a lender to cover the cost of the process of
making a mortgage loan.
Home Buying Guide | 31
PITI: The acronym for principal, interest, taxes, and insurance, usually the four
parts of the monthly mortgage payment.
Points: See Discount.
Principal: The amount of a debt.
Private Mortgage Insurance (PMI): See Mortgage Insurance.
Purchase Contract: See Agreement of Sale.
Release of Lien: An instrument that discharges a lien.
RESPA: The acronym for the Real Estate Settlement and Procedures Act, a law
that requires the lender to disclose information to the borrower, including a
Good Faith Estimate of the borrower’s closing costs.
Security Instrument: The mortgage or deed of trust of the property.
Service Fee: A fee charged to process the monthly payment associated with the
loan.
Subordination: The act of acknowledging that a lien will have a position after a
mortgage loan. This is accomplished by recording a Subordination Agreement.
Tax Lien: A lien against a property for unpaid taxes.
Term: The period of time over which a loan is paid.
Title Deed/Deed: A legal document evidencing ownership of a property.
Title Insurance Policy: A policy that protects the lender in the event of a loss
due to a defect in the title. The owner’s policy protects the owner in this
same way.
32 | Kentucky Housing Corporation
Truth-In-Lending Disclosure: A document which outlines the costs of a loan
and discloses the APR and other terms of the loan, including the finance charge,
the amount financed, the payment amount, and the total payments required.
The lender is required to present the final version of a Truth-In-Lending
disclosure at or prior to the closing.
Underwriter: The person who reviews the buyer’s loan file for the lender and
approves it or turns it down.
Underwriting: The risk analysis of a borrower’s loan application.
Kentucky Housing Corporation
1231 Louisville Rd. | Frankfort, KY 40601
800-633-8896 | www.kyhousing.org
TTY 711
Home Buying Guide | 33
Notes
34 | Kentucky Housing Corporation
Home Buying Guide | 35
Rev. 06-02-2017
Kentucky Housing Corporation, the trusted State housing
finance agency has been helping individuals and families
realize their dream of homeownership since 1972.
Let us help you take part of the American Dream.
www.kyhousing.org
Be sure to check
out our Home
Comparison Chart
to help track the
properties you visit.
Kentucky Housing Corporation prohibits discrimination based on race; color; religion; sex;
national origin; sexual orientation; gender identity; ancestry; age; disability; or marital,
familial, or veteran status.
No state funds were used to produce this document.
A free, Spanish version is available at www.kyhousing.org.